The Resolution of Cross-Border Banking Crises in the EU. A Legal Study from the Perspective of Burden Sharing

Any policy aimed at resolution of a banking crisis determines which constituents – depositors, creditors, shareholders, the banking industry, and society as a whole – eventually bear the costs associated with a banking crisis, thus giving rise to legitimacy and accountability concerns. Rather than what the recent financial crisis has engendered – mostly ad hoc reactions that socialize losses but not profits – what is required, this incisive analysis shows, is an equitable and viable resolution framework, based on burden sharing, enshrined in law, and designed to deal with bank failures in a way that balances private and public interests.

The author explores the design, institutional framework, and practical functioning of such a legal regime under EU law. In the process she discusses such issues as the following:

• the systemic risk of bank failure;

• exit regimes for failing banks and banking groups;

• difficulties produced by the increasing cross-border activities and interconnectedness of the banking sector;

• resolution tools to minimize the losses of the official sector;

• the role of various authorities in resolving failing banks;

• the need for resolution authorities to have robust rules and a certain level of discretion;

• the potential sources of resolution financing;

• overcoming resistance to burden-sharing arrangements;

• the integration potential and political drawbacks of the emerging Banking Union;

• the deposit insurance responsibilities of Member States;

• European Central Bank monetary policy operations as a burden-sharing mechanism; and

• the geographic scope of resolution and burden-sharing regimes and implications for non-participating Member States and third countries.